What are the pitfalls of terms and conditions?

January 7, 2013

This article was originally written for and featured in Womanswear Buyer and Childrenswear Buyer

It’s that time of the year. As a brand owner you are wondering whether you will be paid by retailers or if they are simply intending to trade through Christmas before going bust.

Whilst taking a long time to pay an invoice may be a sign of a well run company which is prudently managing cash flow, a brand owner cannot be sure that nothing is amiss. Certainly sudden delays in making payments should set alarm bells ringing.

If this occurs the brand owner should reach for its standard terms and conditions of sale (T&Cs”). But have the T&Cs been properly made part of the contract with the retailer? Lawyers are often amazed as to the large incidence of clients failing to do so.

If the T&Cs are not made part of the contract with the retailer, the fact that they were drafted by the best law firm in the country will be irrelevant. They will simply be unenforceable.

As such the brand owner should make sure that at the very onset of a commercial relationship the retailer signs a copy of them. Alternatively it is acceptable if the brand owner can show that they were brought to the retailer’s attention although this mat be an evidential issue.

Either way, the brand owner should make clear reference to the T&Cs on order forms, confirmations, delivery notes, and invoices.

If the T&Cs have been properly incorporated, do they contain a retention of title clause?

In particular does the clause:

  • oblige the retailer to store the goods separately and also to label them as belonging to the supplier?
  • Include a right of the brand owner to enter the retailer’s premises to recover goods supplied? (However, a brand owner cannot use force to enter the retailer’s premises.) 
  • Permit enforcement without having to wait for a formal insolvency event to occur? In fact, a brand owner may have more chance of enforcing against a retailer than it would a wiry old insolvency practitioner!
  • Incorporate a so-called “all monies” provision? This may allow the brand owner to recover all goods even if some individual invoices have been paid. However, the goods being claimed under a retention of title clause must still be capable of identification and a brand owner must be able to link them to specific invoices. The goods should also be marked with the name of the supplier, with serial numbers deployed and quoted on relevant invoices.

However, often retention of title clauses try to extend protection to the proceeds of sale when a brand owner's goods are onwardly sold. Unless extreme care is taken over the drafting and the correct procedures are followed, this provision may be void unless registered at Companies House. Not only that, but the inclusion of an invalid proceeds of sale provision may void the rest of the retention of title clause!

Often a knee jerk reaction of insolvency practitioners will be to reject claims that are lodged with them. Brand owners should not be afraid to fight their corner and take legal advice as to the validity of the claim.

Equally, the retailer’s directors may not always be able to hide behind the corporate veil of a limited liability company. If they have traded past the point where the company could not have avoided insolvency or made personal promises, they may be personally liable for the company's debts.

Related pages:

Agency, Distribution and International Trade more

Fashion more

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